Wing Tai Holdings Ltd: Valuations Not Reflective of the Cycle

113% Top-line Growth

Wing Tai’s 2QFY18 revenue rose by 113% YoY to S$130.0m, aided by the contribution from additional units sold in Le Nouvel Ardmore in Singapore, Le Nouvel KLCC in Kuala Lumpur, as well as contribution from BM Mahkota in Penang. Revenue from the units sold in the latter has now been fully recognized, given that TOP has been obtained in November 2017. About S$8.8m of other losses were recorded, due mainly to the write-off of development costs that were incurred. All-in, PATMI for 2QFY18 came in at S$12.6m (as compared to S$2.1m in the corresponding quarter last year), representing 23.0% of our full-year forecast. We deem this set of results to be broadly within expectations.

Well-positioned in the Cycle

In our opinion, the tide continues to be in the favour of local property developers like Wing Tai. The URA’s private residential property price index increased by 0.8% YoY for 4Q17, while on a full year basis, 2017 clocked an increase of 1.1%. This is in comparison to the 3.1% decline that was seen in 2016.

Looking forward, we believe that Singapore home prices in 2018 should appreciate between 3% to 8%. In our view, Wing Tai should be suitably positioned to ride on this upturn, given that the group’s balance sheet remains robust, as it continues to be in a net cash position, with S$840.0m in cash and cash equivalents.

The group has also increased its exposure to the domestic housing sector previously through the acquisition, with Keppel Land Limited, of a 99-year leasehold residential site in Serangoon North Avenue 1.

Valuations Undemanding

Wing Tai currently trades at a consensus blended forward P/B of 0.50x, which is 0.4 S.D. below the 10-year mean. We believe that the recent market correction has resulted in attractive valuations for Wing Tai, given the current stage of the property cycle. With a change in covering analyst, we adjust our assumptions, and bring our fair value down from S$2.77 to S$2.64.